[2023] KEHC 27614 (KLR)

Puee v SBM Bank (Kenya) Limited (Formerly Known as Fidelity Commercial Bank) (Civil Suit 125 of 2016) [2023] KEHC 27614 (KLR) (27 October 2023) (Judgment)

Neutral citation: [2023] KEHC 27614 (KLR)

Republic of Kenya

In the High Court at Mombasa

Civil Suit 125 of 2016

F Wangari, J

October 27, 2023

Between

Manjit Kaur Puee

Plaintiff

and

SBM Bank (Kenya) Limited (Formerly Known as Fidelity Commercial Bank)

Defendant

Judgment

1. Through a plaint dated 1st December, 2016 and filed on even date, the Plaintiff sought for judgement against the Defendant for the following reliefs: -a.A declaration that the Defendants intended sale of the Plaintiff’s property known as L.R. No. 15362 Section I Mainland North, L.R. No. 15363 Section I Mainland North, L.R. No. 15364 Section I Mainland North, L.R. No. 15365 Section I Mainland North and L.R. No. 15370 Section I Mainland North situated at Bombolulu Bandari Villas is illegal, null and void.b.An order of injunction to restrain the Defendant whether by themselves, their agents, servants, employees or any other person acting under the Defendant’s instructions for advertising or further advertising for sale, alienating, selling or in any other way dealing with all that piece or parcel of land known as L.R. No. 15362 Section I Mainland North, L.R. No. 15363 Section I Mainland North, L.R. No. 15364 Section I Mainland North, L.R. No. 15365 Section I Mainland North and L.R. No. 15370 Section I Mainland North situated at Bombolulu Bandari Villas.c.Any other and/or further order or relief that this Honourable Court shall deem fit and just to grant.d.Costs of and/or incidental to this suit.

2. Contemporaneously with the suit was an application of even date which sought for among other orders, temporary injunction restraining the Defendant from realizing the properties forming the subject of the suit. Prayer (2) of the application was granted and additionally, the Plaintiff was required to deposit a sum of Kshs. 400,000/= with the Defendant to meet the cost of the auction which was suspended as a result of grant of prayer (2) of the application.

3. Upon service of the pleadings upon the Defendant, it filed its pleadings as well as a response to the application for injunction. On 30th March, 2017, the application was marked as abandoned on terms that the Plaintiff continues to pay the covenanted monthly instalments and so long as she pays, the interim injunction granted on 1st December, 2016 to subsist pending the hearing and determination of the main suit. This was meant to fast track the hearing and determination of the suit. Further directions on compliance for hearing were issued and the matter set down for hearing.

4. However, on the hearing date, the Plaintiff indicated that the Defendant changed its name from Fidelity Commercial Bank Limited to SBM Bank (Kenya) Limited on 11th May, 2017. For that reason, she sought for leave to amend the plaint to reflect the changes.

5. Leave sought was granted and in compliance with the order, an amended plaint dated 22nd June, 2017 and filed on 23rd June, 2017 was thus put on record. Of note is that the only amendment made was on the Defendant’s name. To the amended plaint, the Defendant filed its amended statement of defence dated 30th August, 2017 on 4th September, 2017.

6. There was change of advocates on the Plaintiff’s end thereafter. Another application dated 19th April. 2018 was filed on 20th April. 2018. It sought for among other orders that the Defendant by itself, auctioneers, directors, agents and servants be restrained from auctioning or offering for auction or sale in any manner the suit premises pending the hearing and determination of the application. Prayer 2 of the application was granted.

7. Upon service, the Defendant filed its response dated 18th June, 2018 on the same date. Directions on the disposal of the application were taken and parties filed their respective submissions. The court having considered the application, responses, submissions and the law rendered its ruling on 4th June, 2020. The court directed that the matter be fixed for hearing within 30 days from the date of the ruling. In the meantime, an order barring disposal of the suit premises was issued pending the hearing and determination of the matter.

8. The court having dealt with all the interlocutory applications proceeded to hear the case. Two witnesses testified in support of the Plaintiff’s case. PW1, Manjit Kaur Puee, the Plaintiff herein testified to the effect that she obtained a loan of Kshs. 18,500,000/= from the Defendant. She offered her five (5) premises being L.R. No. 15362, 15363, 15364, 15365 and 15370 all of Section I Mainland North as security for the loan. She stated that she serviced the loan and as at 16th August, 2016, she had paid the Defendant a sum of Kshs. 27,041,100/= towards the discharge of the loan.

9. Sometimes in late 2016, the Plaintiff stated that she received a call from the Defendant’s legal department that her loan account was in arrears and that her properties, that is, the securities provided, would be sold. She thus rushed to the Defendant’s Nyerere Avenue Branch, Mombasa and requested to be supplied with an updated statement but the same could not be supplied immediately since the Defendant needed to carry out a reconciliation of the account.

10. She waited for the statement but none was forthcoming forcing her to write a letter dated 27th September, 2016. As at the time of filing suit, none had been supplied. PW1 stated that on 25th November, 2016, she received a call from one Muganda Wasulwa who identified himself as an auctioneer. The said Muganda informed the Plaintiff that her properties were up for sale by way of public auction on 2nd December, 2016. He referred the Plaintiff to the Daily Nation Newspaper of 7th November, 2016. She stated that ordinarily, she did not read newspapers and was thus not aware of the said notice.

11. She denied service of any statutory notice prior to the advertisement and neither a current valuation report in respect of the properties. She stated that she had paid Kshs. 27,041,100/= and thus she was surprised that she was said to be in arrears. She stated that in her view, the Defendant had charged illegal and unlawful interest and penalties and thus prayed that the suit be allowed.

12. On cross examination, she stated that she instructed one Mr. Onono to prepare an IRAC report and that she agreed with report which indicated that the terms of loan were in the offer letter. She however, denied receiving any notices be it statutory or otherwise. She equally stated that the interest rates were varied unilaterally without her involvement.

13. PW2, Wilfred Abincha Onono stated that he was working in a consultancy firm known as Interest Rates Advisory Centre (IRAC). He was a Certified Public Accountant (CPA) since 1978. He stated that IRAC is involved in the business of interest recalculation and that they serve bank customers who had issues with the interest rates charged by the banks on loans borrowed. They relied on contracts between the borrowers and the banks as well as changes in the law.

14. He confirmed that he had been instructed by the Plaintiff to prepare a report based on his recalculation. He produced the reports he had prepared. He denied seeing any letter which the bank had reduced interest from 38% to 35%. He confirmed that he applied the rate as per the offer letter which was 15. 5%.

15. He confirmed that when he prepared the report, he did not have any documents from the bank such that he relied on the offer letter until 2016 when the interest rates were capped by Central Bank of Kenya (CBK). On cross examination, he stated that he relied on documents received from the Plaintiff who was the borrower.

16. He confirmed that he had not attached any of those documents on his report. He stated that the difference of Kshs. 6,039,345/- was due to the Plaintiff and that the sum of Kshs. 10,948,402. 04/= was what was owed by the Plaintiff to the Defendant at 16th June, 2017. That marked the close of the Plaintiff’s case.

17. DW1, Beline Akeyo Ochiel adopted both her statements. She equally produced documents filed by the Defendant. She stated that since the suit was filed, the Plaintiff had only made one (1) payment for a sum of Kshs. 2,000,000/=. She confirmed that cumulatively, the Plaintiff had paid Kshs. 26,000,000 and that the outstanding was shown as Kshs. 17,585,654. 48/= and which amount continued to earn interest.

18. She stated that the bank had no reason to communicate with Mr. Onono and that the bank had the right to vary interest rate from time to time. Referred to offer letter, she indicated stated that the bank had the right to vary the interest rate without consulting the Plaintiff. She confirmed variation of interest rate in 2016 due to CBK capping.

19. On cross examination, she denied that the bank was charging interest rate at 35%. She stated that 35% was the penal rate and that the interest rate was reduced from 23% to 20%, The excess rate was only charged on the overdue amount. She further added that the Defendant could not exercise its statutory power of sale without doing a valuation. She denied knowledge of the Defendant’s attempts to auction the property on three (3) previous occasions.

20. Referring to documents from Keysian Auctioneers, she confirmed that the notification of sale was dated 19th September, 2016 and that the valuation report is dated 21st November, 2016. The auction was to take place on 2nd December, 2016 after valuation. She confirmed that the bank must instruct the auctioneer of the reserve price. She confirmed that sale should not take place before valuation is done.

21. She stated that in 2016, the bank wanted to recover Kshs. 16,500,000/=. Each of the houses was valued at Kshs. 8,000,000/= and that all of them had been charged to the bank. It was contended that the bank had no means of knowing which units were to be sold. She concluded that if there were 100 houses charged to the bank, the bank retained the right to advertise all of them

22. PW2, Wilfred Abincha Onono, an accountant by profession working for a consultancy firm called Interest Rates Advisory Centre (IRAC) stated their work involved interest recalculation. They worked for bank customers who had issues with interests charged by the banks on loans borrowed. They relied on contracts between the borrowers and the banks as well as changes in law such as the changes in 2016 which capped interest rates at 4% above the Central Bank of Kenya’s rates.

23. He was approached by the Plaintiff and she prepared a report on her behalf. He produced the reports he had prepared. On cross examination, he confirmed that he relied on documents supplied by the Plaintiff and that he had not attached any of those documents to his report. He added that Kshs. 6,039,345/= was due to the Plaintiff and that the sum of Kshs. 10,948,402. 04/= was what was owed as at 16/6/2016. That marked the close of the Plaintiff’s case.

24. The defence witness, Beline Akeyo Ochiel took to the stand and stated that she had worked with the Defendant since October, 2010. She confirmed that she had filed two (2) statements which she adopted as her evidence in chief. She equally produced the documents filed by the Defendant. She confirmed that since the commencement of the case, the Plaintiff had paid certain payments.

25. For instance, on 26/4/2018, she paid Kshs. 2,000,000/= and that cumulatively, she had paid about Kshs. 26,000,000/= and that the outstanding amount was Kshs. 20,000,000/=. She stated that the bank had no reason to communicate with PW2 and that it retained the right to vary the interest rates from time to time. Therefore, it was not obliged to consult the borrower before varying the rate of interest. She explained in detail what excess rate meant.

26. On cross examination, she stated that excess rate was only charged on the overdue amount. On the issue of notices, she confirmed that they were to be written and submitted to the borrower. She insisted that the borrower would get to know the changes in the interest rate through the statement of account. She added that the bank could not exercise its statutory power of sale without doing a valuation.

27. Referring to the auctioneers’ notification, she confirmed that it was dated 19/9/2016 and the valuation was dated 21/11/2016. The auction was to take place on 2/12/2016. She confirmed that the bank ought to instruct the auctioneer of the reserve price. She equally confirmed that sale could not take place before valuation. She stated that on September, 2016, the Defendant wanted to recover Kshs. 16,500,000/= and that each house had been valued at Kshs. 8,000,000/=.

28. All the units had been charged and that the bank did not have means of knowing which units would be sold. She added that even if there were 100 houses charged to the bank, the bank would advertise all of them to recover a sum of Kshs. 1,000,000/=.

29. On re-examination, she stated that the 2016 auction did not take place as the Plaintiff moved to court and obtained an order of injunction. Therefore, the Defendant was at liberty to repeat the procedure so long as the sums remained outstanding. That marked the close of the defence case. Parties opted to file written submissions which they highlighted.

Plaintiff’s Submissions 30. They are dated 26th November, 2022 and filed on 28th November, 2022. It was submitted that banks and financial institutions had for decades took advantage of the provisions of section 69B (2) of the Transfer of Property Act to sell charged property and pass clean title to purchasers even though no case had arisen to authorize that sale or that the power was improperly or irregularly exercised.

31. In this regard, the Plaintiff submitted that considering the repeal of the said Act in 2012, any decision supported by the said Act ought not to be considered. The Plaintiff submitted at length on the issue of service of the mandatory notices to allow a party to redeem his/her/its property.

32. It was submitted that the Defendant wished to first auction the property and then obtain a valuation report and instruct the auctioneer on the reserve price way after the auction. It was submitted that the notification of sale as well as the auctioneer’s letter predate the valuation report dated 21/11/2016 and thus it was contended that as at the time of issuing instructions to the auctioneer, the Defendant had not valued the property. The Plaintiff poured cold water on the affidavit of service sworn by one Moganda Wasulwa.

33. On the issue of variation in interest rates, it was submitted that any change on interest not notified to the Plaintiff in writing by personal service or proven registered post does not constitute notice within the meaning of the offer letter and charge.

34. On the issue of the Defendant seeking to sell five (5) houses to recover a debt of Kshs. 18,500,000/=, it was submitted that this was oppressive, unreasonable, malicious and a greedy intention by the bank since a sale of only two (2) units would have satisfied the debt. It was submitted that the Defendant having admitted the payment of the principal sum, the issue of interest payable remained a dispute within the meaning of Article 50 (1) of the Constitution thus inviting a resolution by this court.

35. However, the Plaintiff contended that the IRAC report by PW2 resolved the dispute in favour of the Plaintiff since the Defendant did not call any expert witness. The Plaintiff thus submitted that the prayers sought in the amended plaint be allowed.

Defendant’s Submissions 36. They are dated 23rd February, 2023 and filed in court on even date. They were divided into five (5) broad areas which I will not rehash save to summarize them as follows: -

37. The Defendant submitted that the issue of statutory notices and valuation cannot be raised at the stage of hearing since in the ruling of 4th June, 2020, the court only framed one issue for determination based on the consent the same being that it is only the issue of the interest chargeable.

38. The case of Flora N. Wasike v Destimo Wamboko [1988] eKLR was cited on the issue of consent. It was further submitted that the provisions of section 90 (1) and (2), 96 (2), 97 (1) and (2), 98 (2) of the Land Act as well as Rules 15 (d) and 16 (2) of the Auctioneers Rules were all complied with. Noncompliance thereof were said to be mere irregularities. The cases of Erick O. Odindo v National Bank of Kenya Limited & 2 Others [2008] eKLR and Anne Wachisi Situma & Another v I & M Bank Limited & 2 Others [2021] eKLR were cited in support.

39. On whether the bank was entitled to vary interest rate, it was submitted that where parties have by agreement have fixed the interest rate payable, then courts have no discretion in the matter but only enforce it unless the rate is illegal, unconscionable or fraudulent. The case of Ajay Indravadan Shah v Guilders International Bank Ltd [2003] eKLR and Husamuddin Gulamhussein Pothiwalla were cited in support.

40. The Defendant cited several other authorities such as the Court of Appeal decision in Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR to augment its position that the Plaintiff was not entitled to the reliefs she sought in her amended plaint. It was thus concluded that the Plaintiff’s suit be dismissed with costs.

Analysis and Determination 41. I have considered the pleadings, the evidence tendered, submissions together with the authorities relied upon by the parties as well as the law and in my view, the following are the issues for determination: -a.Whether the Plaintiff made out a case for grant of orders sought in her amended plaint dated 22nd June, 2017;b.What is the order as to costs and interests?

42. At the onset, the following issues are not in dispute:i.The Plaintiff applied for and obtained a loan to the tune of Kshs. 18,500,000/= from the Defendant;ii.The Plaintiff offered her five (5) houses as security for the loan advanced; and thatiii.The principal amount was fully paid.

43. Having found as above, the only issue and which issue was subject of this court’s ruling dated 4th June, 2020 is the interest. In is not disputed that the Base Lending Rate (BLR)was at 16% as at the time the contract was made. As per clause 6 of the offer letter, it was agreed at 15. 5% being 0. 5% less BLR. In the same clause, the Defendant reserved the right to vary interest rates from time to time. This being the contract entered into by the parties, it is not this court’s business to rewrite contracts.

44. In National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR, the Court of Appeal held as follows: -“…A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved…”

45. The court cited the decision by Shah, J (as he then was) in Fina Bank Limited v Spares & Industries Limited, Civil Appeal No. 51 of 2000 (unreported) where it was held as follows: -“…It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a bad bargain, it is ordinarily no part of equity’s function to allow a party to escape from a bad bargain”

46. Having stated as above, was the Defendant at liberty to vary interest rates as it pleased? This question was answered by the Court of Appeal in the case of Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] eKLR. Quoting the English decision of Paragon Finance plc v Staunton; Paragon Finance plc v Nash [2001] EWCA Civ 1466 [2002] All ER 248, the court quipped as follows: -“…We are in agreement with the sentiments of the English Court that the discretion on the respondent in the present case was not completely unfettered, and applying those sentiments to the appeal now before us, we find it objectionable that the lender can vary interest to its benefit, without any recourse to or passing such information to the borrower, especially where such interest rises up to an exorbitant level. There does not appear to be any notice to the appellant in this case as to what the rate of interest would be. As stated earlier, the right or discretion given under the contract to vary interest was not unfettered and the contract must be construed reasonably. It must be shown or at least be self-evident that at the time the interest was being changed, it was brought to the attention of the borrower… We find it particularly unfortunate that in the present appeal, the respondent varied the interest and seemed not to provide this knowledge to the appellant or to the borrower. We think this was wrong. If that information was readily availed to the borrower, the borrower would make an informed decision based on his or her circumstances and the consequences that are likely to arise due to the variation undertaken. The borrower may choose to opt out of the contract through full liquidation or look at other institution that would accommodate his or her interest. Information supplied to a borrower before any adverse variation of interest rate is made affords him an opportunity to assess this relationship with his lender, and the right to terminate the contract may even be exercised…”

47. The Plaintiff led evidence that no notice had been served upon her communicating the bank’s decision to vary the interest rates. On cross examination, DW1 confirmed that notices were to be given in writing and submitted to the borrower. She further stated that the borrower would get to know the changes in the rate of interest through the statement of account. I have no reason to disbelieve the Plaintiff’s testimony on this aspect. It was the bank’s fiduciary duty to send notices and I find the reason proffered on how the Plaintiff ought to have known the interest rate changes to be at home extremely lame.

48. There was evidence that the Plaintiff had paid the principal sum. Equally, DW1 confirmed that the Plaintiff had paid Kshs. 26,000,000/= which amount is over and above the amount advanced. PW2 who is an expert corroborated the Plaintiff’s allegation and with no counter evidence, I am convinced that the Plaintiff discharged her duty towards the Defendant. Thus, on the first issue, I am satisfied that the Plaintiff made out a case to warrant the reliefs sought. Having found as above, I find merit in the amended plaint dated 22nd June, 2017.

49. On costs, it is settled that the same follows the event. However, the court retains discretion whether to grant them or not. Furthermore, this discretion must be exercised judiciously and courts should not deprive a plaintiff/defendant of his or her costs unless it can be shown that they acted unreasonably. The Halsbury’s Laws of England, 4th Edition (Re-issue), [2010], Vol.10. para 16, notes as follows: -“The court has discretion as to whether costs are payable by one party to another, the amount of those costs, and when they are to be paid. Where costs are in the discretion of the court, a party has no right to costs unless and until the court awards them to him, and the court has an absolute and unfettered discretion to award or not to award them. This discretion must be exercised judicially; it must not be exercised arbitrarily but in accordance with reason and justice”

50. Any departure from this trite law can only be for good reasons which the Supreme Court in Jasbir Singh Rai & Others vs Tarlochan Rai & Others [2014] eKLR noted includes public interest litigation since in such a case, the litigant is pursuing public interest as opposed to personal gain. The award of costs is therefore not cast in stone but courts have ultimate discretion. In exercising this discretion, courts must not only look at the outcome of the suit but also the circumstances of each case.

51. In Morgan Air Cargo Limited v Everest Enterprises Limited [2014] eKLR the court noted as follows: -“The exercise of the discretion, however, depends on the circumstances of each case. Therefore, the law in designing the legal phrase that ‘’Costs follow the event’’ was driven by the fact that there could be no ‘’one-size-fit-all’’ situation on the matter. That is why section 27(1) of the Civil Procedure Act is couched the way it appears in the statute; and even all literally works and judicial decisions on costs have recognized this fact and were guided by and decided on the facts of the case respectively. Needless to state, circumstances differ from case to case.”

52. There was no evidence led to show that the Plaintiff was guilty of any misconduct to be deprived of costs and as such, I award the Plaintiff the costs of the suit which shall be taxed by the Deputy Registrar of this court.

53. Following the foregone discourse, the upshot is that the following orders do hereby issue: -a.Judgement is hereby entered in favour of the Plaintiff against the Defendant as follows; -i.A declaration is hereby issued that the Defendant’s intended sale of the Plaintiff’s property known as L.R. No. 15362 Section I Mainland North, L.R. No. 15363 Section I Mainland North, L.R. No. 15364 Section I Mainland North, L.R. No. 15365 Section I Mainland North and L.R. No. 15370 Section I Mainland North situated at Bombolulu Bandari Villas is illegal, null and void.ii.An order of injunction is hereby issued restraining the Defendant whether by themselves, their agents, servants, employees or any other person acting under the Defendant’s instructions for advertising or further advertising for sale, alienating, selling or in any other way dealing with all that piece or parcel of land known as L.R. No. 15362 Section I Mainland North, L.R. No. 15363 Section I Mainland North, L.R. No. 15364 Section I Mainland North, L.R. No. 15365 Section I Mainland North and L.R. No. 15370 Section I Mainland North situated at Bombolulu Bandari Villas.iii.The Defendant is directed to immediately forthwith release any title documents in its possession held in respect of the subject piece of land to the Plaintiff.iv.Costs of the suit to the PlaintiffOrders accordingly.

DATED, SIGNED AND DELIVERED AT MOMBASA THIS 27TH DAY OF OCTOBER 2023. F. WANGARIJUDGEIn the presence of;N/A for the PlaintiffMs. Akwana Advocate for the DefendantBarille, Court Assistant